Tanzania Health Policy Note: Opportunities for Prioritizing Health in the Budget Mariam Ally Moritz Piatti-Fünfkirchen This is the first of a series of policy notes that address critical health finance related questions in Tanzania. They are issued as part of a larger public expenditure review exercise. The audience is government, civil society and the development partner community with the aim to initiate a dialogue around key health finance issues and present recommendations to government. This policy note discusses how the government prioritizes health in the budget. Key Findings and Recommendations Main Finding: The government increased its revenue base substantially on the back of a rapidly growing economy. A significant share of the budget is also not pre-committed. This means there is budgetary space for investing significantly in social sectors including health. This however did not happen. Instead the government increased its infrastructure portfolio and the health budget grew at a much slower pace than revenue or general government expenditure. As such, there was a de-facto prioritization away from health. Since 2010, the health share of the budget contracted by 3 percentage points to about 6 percent in 2017. The following recommendations offer an opportunity for government to re-engage in health as a priority sector. Recommendation 1: Investment in health also constitutes an investment into the economy. Increased health budget allocations should be advocated as an investment rather than just a social service. This will help to better position the health sector vis-à-vis other investment opportunities such as transport. A dedicated study on the economic returns to health in Tanzania is recommended. Recommendation 2: Evidence good use of funds to strengthen case for increased budget allocation. Ensuring funds efficiently reach front line service delivery and are effective in producing health outcomes will help the economic case for greater budget allocations to health, as the marginal return is higher. Given the promising initiative of direct facility financing, it is recommended that government follows basket fund partners and provides budgetary allocations directly to facilities. Recommendation 3: Budget allocation for non-wage recurrent expenditures are easiest to freeze, but are critical for service delivery. It is recommended that the growth of non-wage recurrent expenditure is monitored carefully and tagged to at least match overall expenditure growth (or overall non-wage expenditure growth). The health sector is operating in an enabling macroeconomic environment. For a decade, Tanzania has been maintaining high growth on real GDP oscillating around 7 percent. This is an impressive achievement in absolute terms and also significantly above regional averages. High growth rates have been maintained on the back of an expansionary fiscal stance, yet prudent 1 macroeconomic management kept inflationary pressures at bay. The government’s revenue collection is low, but an effort has been made to increase capacity for domestic resource mobilization. Expenditures have generally outpaced revenue collection, and the fiscal deficit has ranged from 2-5 percent during the period contributing an increasingly fast accumulation of debt. An overview of key economic indicators is provided in the table below. Table 1 Select Economic Indicators 2015 2016 2017 2018 2019 GDP growth, real 7.1 7 6.2 6.8 6.8 GDP per capita (current USD) 1,032 957 970 1032 1,100 Inflation (end of period), percent 4.8 6.8 5.0 5.0 5.0 changes Revenue (% of GDP) 14.9 14.5 15.9 16.7 16.6 Expenditure (% of GDP) 17.9 17.8 19.7 21.0 21.2 Fiscal balance (% of GDP) -5.2 -3.5 -1.5 -4.2 -4.6 Debt to GDP ratio 33.8 36.9 39.0 40.3 41.2 Source: IMF World Economic Outlook 2018. There is space in the budget for increased health sector allocations. Strong economic growth and improving revenue collection has led Tanzania to a strong fiscal position. This also means increased fiscal space for government and potentially increased budgetary space for health. In net terms, government almost quadrupled its revenue from TZS 5,242 billion to TZS 20,385 billion between 2008 and 2018. Given single digit inflation figures, not much of this gain was eroded and government purchasing power was maintained. On the expenditure side, the government actively invested in infrastructure, which together with the wage bill make up the majority of total expenditures. Despite considerable growth in debt from 21 percent to 41 percent of GDP over a decade Tanzania remains at low risk of debt distress and interest payments remain manageable. This situation compares very favorably to other countries in the region such as Zambia, Ghana, and Mozambique where quasi statutory payments such as wages and interest payments almost make up the entire resource envelope. In Tanzania, these make up just over 40 percent meaning there is significant budgetary space remaining for investments and the financing of goods and services. The rapid increase in revenue and expenditure compared to the expenditure breakdown is provided in figures 1 - 3. 2 Figure 1 Government Revenue and Expenditure Have Figure 2 After Interest and Wage Payments There Remains Grown Exponentially in Recent Years Significant Fiscal Space for Service Delivery 30,000 18,000 16,000 25,000 14,000 20,000 12,000 TZS Billion TZS Billion 10,000 15,000 8,000 10,000 6,000 4,000 5,000 2,000 0 0 2005 2007 2009 2011 2013 2015 2017 Revenue Expenditure Revenue Expenditure Wages Interest payments Development Goods, services, transfers Source: Authors based on IMF data. Figure 3 Components of the General Government Budget 100% 90% 24% 29% 30% 26% 25% 32% 31% 35% 80% 39% 43% 43% 43% 70% 17% 15% 16% 60% 19% 18% 18% 20% 16% 10% 50% 19% 20% 10% 10% 10% 21% 13% 40% 23% 20% 22% 13% 12% 12% 23% 25% 9% 8% 7% 9% 30% 8% 9% 10% 4% 4% 4% 6% 20% 3% 28% 32% 32% 30% 23% 25% 25% 25% 26% 25% 25% 10% 21% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Wages and salaries Interest payments Goods and services and transfers (55%) LGA remaining (45%) All other Source: FMIS and Boost. The health sector has not been a priority in the budget and budget allocations have dropped significantly. The health sector however has not been a priority sector in recent years, and health sector expenditures have been growing at a slower pace than what the growth of revenue or general government expenditures might suggest. While the growth rate of the health budget was 3 generally positive, it was also mostly lagging behind revenue and general government budget growth rates as shown in figure 4. Naturally therefore, health expenditures have grown in absolute numbers but as a share of the general government budget they were reduced significantly. Between 2010 and 2017, the total health budget almost doubled whilst being reduced by 3 percentage points as a share of the general government budget (see figure 5). Figure 4 The Growth Rate of The Health Budget is Below That of Figure 5 Health Budget has Declined Significantly as a Share of the Other Expenditures and Revenue General Government Budget 35% 1,600,000 M 10% 1,400,000 M 9% 30% 8% 1,200,000 M 25% 7% 1,000,000 M 6% 20% TZS 800,000 M 5% 15% 600,000 M 4% 3% 10% 400,000 M 2% 5% 200,000 M 1% 0% 0M 0% 2011 2012 2013 2014 2015 2016 2017 -5% Health budget All other Revenue growth Health Health share Source: FMIS and Boost data. Discussion and Conclusions The economy and revenue inflows are growing at a rapid pace. The government is taking an increasingly fiscal expansionary position and is prepared to borrow to address competing demands. Health budget allocations have been growing too, but at a much slower rate than revenue or general government expenditure. This has led to a significant contraction of the share in the budget dedicated to health. Thus, while government is slowly increasing the health budget it is de-facto prioritizing away from health. Since 2010, the government reduced its relative share to health by 3 percentage points to about 6 percent of the budget. Some expenditure items in the budget are statutory in nature and have priority. These include debt payments and wage payments. In Tanzania these only make up a relatively small share of the overall budget leaving significant fiscal space for service delivery. The government has chosen to instead dedicate much of the remainder of the budget to infrastructure investments to further stimulate the economy. The government’s priority is to develop the economy. In this light it is critical to present the health budget not only as a serving a social function but also as an investment in the economy. This case would further be strengthened if it can be evidenced that funds allocated to the sector are utilized efficiently and reach the front lines in service delivery. The strong economic and revenue position, offer an opportunity to expand investments in health. It is now a matter of reprioritization. 4